I just read the latest bankruptcy rates, and they are staggering. I've been paying close attention to the housing market in California since I was in the real estate industry in Southern California for 15+ years.

Here are the latest stats according to the American Bankruptcy Institute:

There were a total of 245,695 bankruptcy filings during the first calendar year quarter of 2008 (Jan. 1-March 31). That is up 26.9% from the same period in 2007 and up 47.5% from the same period in 2006. That's over 245,000 people (children included) that have been affected...

The latest bankruptcy rates are affecting me because we are talking about the ability of people to thrive - and when you take that away, you reduce a person's potential. Having lived in Southern California for most of my life, my friends and family are suffering from the housing bubble and some of them are included in the bankruptcy and foreclosure rates.

Granted, smart money management can reduce or eliminate potential problems like bankruptcy (I'm sure there are plenty of people who overextended themselves and are now suffering the consequences), but in states like California where the housing prices are outrageously high, the only way to own a home is to overextend yourself. The job market simply doesn't support the cost of living.

This is where I blame our ridiculous preoccupation with capitalism. The economy is a complex system and the slightest event can set a chain of unwelcome results. And in the case of the U.S., there have been several events that have catapulted the nation into an economic downturn (I'm choosing not to address my distaste for GW Bush at the moment....).

Housing prices were so far above the average income in California, that home ownership was out of reach for a large majority of residents. I remember reading an article in 2005 in Realtor Magazine that said only 18% of California residents could afford to buy a home (I just found that article - read it here.) That meant that 82% of residents were forced to raise their children in a 2-bedroom apartment. That's absurd.

With only 18% of the California residents able to purchase a mortgage, that left for small profits for mortgage companies. In order for mortgage companies to make real profits in the California market, they had to get "creative." That's when they came up with "creative" financing. They knew that people couldn't afford the mortgage they were applying for, but they paid no attention and approved the loan anyway. They were out for instant gratification.

They knew that under the Bankruptcy Reform Law of 2005 they would have a good chance of collecting at least some of their money - even if their clients were homeless and broke. They were more concerned about the money in their pockets, than with the well-being of their clients.

That's when the "compound effect" hit our economy. It seemed like a dream come true to finally own a home in California. That is until borrowers got the mortgage bill after the ARM adjusted a few years later. In some cases, monthly mortgage payments doubled, making it impossible for borrowers to make their payment. And California wasn't the only state where this was happening...

People were unable to pay their mortgage and were forced to file bankruptcy. And bankruptcy isn't necessarily the relief it used to be, because the Bankruptcy Reform Act of 2005 makes it more difficult for people to recover from financial trouble when they are forced to pay back a portion of their debt. In the process, most of them were forced into foreclosure compounding their challenges.

Do I think that financial irresponsibility should be rewarded with a full pardon? Not necessarily. But I do believe that the mortgage companies should bear a portion of the responsibility. Think about this way, many mortgage companies were aware their clients couldn't afford their mortgage, but knowingly lent the money anyway. Meanwhile, their borrowers will spend the rest of their lives struggling to repay their debt and their children will have to depend on college scholarships to gain an education.

So what's the upside in all this?

I am still hopeful. Hopeful that we as individuals and as a government will learn from this experience. I am hopeful that out of this economic crisis new laws will be created that preserve the integrity of its people and government. And I am hopeful that people will make better decisions about their finances and align their lifestyle with what is truly important to them.